Canada’s Minister of Innovation, Science and Economic Development (“ISED”), Francois-Philippe Champagne, made two important announcements on Monday morning in an exclusive interview with Toronto Star business reporter, Christine Dobby, and in a subsequent press release: (1) the Government of Canada (the “Government”) will engage in a broad review of the Competition Act (the “Act”) with a view to promoting dynamic and fair markets, and (2) the $93 million transaction-size threshold for pre-merger notification will not be increased this year – an unusual development following a year of GDP growth.
Competition Law Review
Minister Champagne announced that the Government will engage in a review of Canada’s competition laws with a view to promoting dynamic and fair markets. It is expected that the review will lead to a variety of amendments, as discussed in more detail below. Minister Champagne has signalled that the review may take place in two stages. The first stage may involve looking at how the Government can address perceived gaps in the law and the second stage would involve a more comprehensive review of the Act.
The decision to review the Act is a response to growing calls for reform from civil society, academia and the Commissioner of Competition (the “Commissioner”). Senator Howard Wetston issued a consultation invitation intended to inform future parliamentary consideration of the Act, particularly its fitness for a digital era, contextualized by a paper he commissioned from Professor Edward Iacobucci of the University of Toronto, which made some suggestions for reform. The consultation garnered 23 responses. While some of these responses advocated for the status quo, others advocated for limited to wide ranging reform proposals with a varying likelihood of adoption. According to the Toronto Star article, the government is considering Senator Wetston’s findings.
Minister Champagne has indicated that the Government’s review of the Act will include an evaluation of the following:
- Collusion involving so-called wage-fixing: Minister Champagne indicated that collusion by employers to fix wages is an issue the Government wants to tackle. Under the Act, as currently drafted, wage-fixing agreements (and other buy-side agreements) fall outside of the criminal conspiracy provision. Further, such agreements are not subject to prohibition under the civil provisions of the Act without proof of anticompetitive effects. Even if anticompetitive effects are proven, monetary penalties are not available for such agreements. These circumstances have come under increased criticism over the past few years, particularly in contrast to the active and recent criminal enforcement of such agreements by the United States’ Department of Justice. Accordingly, it is expected that the Government will take action on this issue in the first phase of any amendments to the Act.
- Drip pricing: Minister Champagne made it clear to the Toronto Star and in his ministry’s subsequent press release that the Government wants to tackle the issue of “drip pricing”. Drip pricing refers to advertised prices that are not in fact attainable, due to additional, non-optional fees that must be paid by consumers. Drip pricing is already prohibited by civil and criminal provisions in the Act, which prohibit companies from making materially false or misleading representations to the public for the purpose of promoting a product, service or business interest. Further, the Competition Bureau (the “Bureau”) has successfully enforced these provisions on many occasions. It is unclear how the Government intends to more clearly address drip pricing, but it is clear that this is a priority.
- Penalties: The Government has indicated that it will consider modernizing the penalty regime to ensure it serves, in its view, as a genuine deterrent against harmful business conduct. Currently the maximum administrative monetary penalty (“AMP”) is $10 million (or $15 million for subsequent breaches) for abuse of dominance and deceptive marketing (including the making of misleading representations about user privacy which is another area of concern identified by Minister Champagne). These penalties have been criticized, including by the current Commissioner, as insufficient to deter anticompetitive conduct. Increased AMPs for anticompetitive conduct are likely to arise from the legislative review, but likely not in the first stage of amendments.
- Increasing Access to Justice: In its press release, the Government indicated that it will evaluate how to increase access to justice for those injured by harmful conduct. This is understood to refer to proposals to increase private rights of access to the Tribunal for remedies for an expanded list of anticompetitive conduct. In its current form, the Act allows private persons to seek leave of the Tribunal to bring an application for a remedial order in respect of five reviewable practices: refusal to deal, price maintenance, exclusive dealing, tied selling and market restriction. However, neither AMPs nor damages are available remedies for such conduct. Unsurprisingly, private actions have not been numerous. Some reform advocates have pointed to the inability of private applicants to bring an application for a remedial order in respect of abuse of dominance as a gap in Canada’s competition legislation. The Government may be alluding to an evaluation of possible amendments to allow for private parties to litigate alleged abuses of dominance cases without the Commissioner’s involvement.
- Efficiencies Defence: There have been proposals to eliminate what is known as the “efficiencies defence”. The Act has a stand-alone efficiencies defence, which can allow mergers and proposed mergers to proceed if the efficiencies they generate outweigh any anticompetitive effects arising from the transaction. In other words, the efficiencies defence applies where a transaction is likely to bring about gains in efficiency that will be greater than, and will offset, the effects of any prevention or lessening of competition that are likely to result from the transaction. The Government’s press release does not specifically indicate that it will consider making changes to the efficiencies defence, but Minister Champagne indicated in his interview with the Toronto Star that the Government will consider making changes to the efficiencies defence in its broader review of the Act.
- Other Possible Changes: The Government’s press release indicates that it will evaluate ways to improve the operation of the Act by “fixing loopholes that allow for harmful conduct” and “adapting the law to today’s digital reality to better tackle emerging forms of harmful behaviour in the digital economy”. These statements suggest that the Government will consider a wide range of policy proposals in its review. For example, some reform advocates have suggested that the Government consider:
- reframing the purpose clause of the Act (g. to focus only on economic efficiency, or to include a broader range of goals such as the protection and advancement of economic and social interests of underprivileged groups, as well as environmental protection, and to address the negative implications of concentrated economic power);
- studying and possibly changing the substantive test for anticompetitive effects;
- banning self-preferencing – either generally or just by large digital platforms;
- indicating that competition analysis take into account the degree to which an acquisition of data can confer market power;
- including specific provisions to protect user privacy and data;
- eliminating the need for proof of harm to competitors under the abuse of dominance provision;
- mandating interoperability and data portability;
- creating a ‘right to repair’;
- enabling the Bureau to carry out ex post merger re-evaluations (e. evaluating the effects of mergers after consummation);
- empowering the Bureau to conduct market studies, including by granting the Bureau the power to compel information from firms to carry out its market studies; and
- taking the Bureau out of ISED to reduce what some view as the perception of political interference and to give the Commissioner more voice and autonomy.
No timeline has been provided for when a review of the Act will commence. Updates will be posted on the Competition Chronicle as more information becomes available.
It bears noting that Canada is not the only jurisdiction considering reforms to its competition laws. In 2019, many jurisdictions, including Australia, the European Union, the United Kingdom and the United States, published in-depth studies of the effectiveness of their competition laws, particularly in the context of digital transformation, and many of the recommendations in these reports have been adopted in legislative reform proposals. For example, the United States is considering bold antitrust law reforms such as: (i) the American Innovation and Choice Online Act, which aims to prohibit so-called dominant online platforms from engaging in discriminatory behaviour, including by favouring their own products or services, disadvantaging rivals or discriminating among businesses that use their platforms in a way that harms competition on the platform; (ii) the Competition and Antitrust Law Enforcement Reform Act, which would, most notably, amend the Clayton Act to lower the standard for permissible M&A activity, prohibit so-called exclusionary conduct in order to prevent harmful dominant firm conduct and increase the financial penalties for violating antitrust laws; and (iii) the Ending Platform Monopolies Act, which is intended to eliminate the ability of covered platforms to leverage their control over multiple business lines to self-preference and disadvantage competitors in ways that undermine free and fair competition. These and other legislative proposals are bolder that the amendments currently being considered in Canada. However, international debate over the future direction of antitrust law and enforcement are informing, and will continue to inform, the Canadian debate.
Pre Merger Notification
Minister Champagne announced that the transaction-size threshold for pre-merger notification under the Act will remain at $93 million for the duration of 2022. This is an unusual development as the transaction-size threshold generally increases each year based on Canada’s GDP growth (or decreases with GDP contraction) based on a formula set out in the Act.
Minister Champagne indicated that the decision not to increase the transaction size threshold following a year of GDP growth was taken in recognition of the growing pressure of rising inflation on Canada’s economy and to “give the Competition Bureau a greater field of view in its efforts to detect potentially harmful transactions”. Accordingly, the Government has made a policy choice, which is a departure from past practice, where the Government followed a GDP-based formula.
By way of background, certain proposed transactions that exceed prescribed thresholds under the Act trigger a pre-merger notification filing requirement. Such transactions cannot close until notice has been provided to the Commissioner and the statutory waiting period under the Act has expired or has been terminated or waived by the Commissioner. Where both the “transaction-size” and “party-size” thresholds are exceeded, a proposed transaction is considered “notifiable”.
- Party-Size Threshold: The party-size threshold requires that the parties to a proposed transaction, together with their affiliates, have assets in Canada or annual gross revenues from sales in, from or into Canada, exceeding $400 million. This threshold is not subject to change in the Act as currently drafted.
- Transaction-Size Threshold:The transaction-size threshold requires that the book value of assets in Canada of the target (or in the case of an asset purchase, the book value of assets in Canada being acquired), or the gross revenues from sales in or from Canada generated by those assets, exceed a certain threshold. That threshold may be subject to adjustment, annually, based on Canada’s GDP. As mentioned, the threshold for 2022 will be the same as 2021 – $93 million.
It is important to note that regardless of whether a transaction is notifiable (i.e., regardless of whether the applicable thresholds discussed above are exceeded), the Commissioner can review and challenge all mergers prior to or within one year of closing.
If you have questions about the Competition Act, you can reach out to any member of Fasken’s Competition, Marketing & Foreign Investment group. Our group has significant experience advising clients on all aspects of Canadian competition law.
The information and guidance provided in this blog post does not constitute legal advice and should not be relied on as such. If legal advice is required, please contact a member Fasken’s Competition, Marketing & Foreign Investment group.